Practice Note 8/2: Future maintenance liability for accommodation works

The Valuation Office Agency`s technical manual covering all aspects of compulsory purchase and compensation.

1. Introduction

Where accommodation works are provided by an acquiring authority, their future maintenance usually (other than in motorway and railway cases) falls on the claimant from whom land has been acquired. The assessment of compensation to reflect this maintenance liability has been the subject of a number of tribunal cases over the years.

Claimants sometimes demand payment of commuted sums to compensate for the liability for future maintenance and replacement costs of accommodation works and these can be based on the net present value of the estimated future costs or on the necessary capital sums required to be invested to provide a sinking fund for these costs. Their submitted calculations often sometimes also reflect future inflation in costs and the tax status of the claimant.

2. Decided cases

In Cuthbert v Secretary of State for the Environment [1980] RVR 40, the claimant submitted a ten page calculation to demonstrate that the capitalized future maintenance cost of post and rail fencing (erected as accommodation works) was £418,263 although the claim was for £225,652 being the cost of erecting stone walls to replace the fencing provided by the acquiring authority. The District Valuer made an overall assessment of injurious affection of £25/acre over 500 acres giving £12,500.

The Lands Tribunal derived no assistance from the claimant’s calculations and said, inter alia, that it did not need to assume any particular rate of inflation and that it was not appropriate to use tax adjusted tables when capitalising the estimated cost of future maintenance. It also stated that it thought that a purchaser of the estate would treat the fencing maintenance responsibility as a routine outgoing to be met year by year out of estate income. The Tribunal adopted the District Valuer’s approach but increased the amount of injurious affection to £50/acre giving £25,000.

In Wilson v Minister of Transport [1980] 1 EGLR 162 the claimant assessed both the future maintenance liabilities for fencing and the increased cost of running the farm by reference to the increased man hours required over a twenty year period. The District Valuer assessed the compensation by reference to lump sums or percentages of value for various parts of the estate. The Tribunal thought that a purchaser, possibly having made some calculations under the different parts of the claim, would make an overall assessment in deciding by how much he would reduce his bid for the land and would have to consider what other competitive purchasers might bid. The Tribunal awarded £7,000 for injurious affection (but provided no breakdown of this figure) against the claimant’s £21,863 and the District Valuer’s £2,441.

In McLaren’s Discretionary Trustee v Secretary of State for Scotland [1987] RVR 159 the claimant assessed the compensation by calculating the capital sum that would need to be invested in index-linked Government stock to pay for the future maintenance and renewal of various accommodation works including fencing, roads, revetments and gates. The required sum was calculated at £147,242. The District Valuer assessed the total diminution in value due to injurious affection (including future maintenance liabilities) by reference to the prime cost of each item of accommodation works which totalled £33,890.

The Tribunal determined that calculations relating to the costs of future maintenance and renewal of accommodation works could be relevant but since the claim comprised injurious affection and not disturbance it rejected the claim based on an inflation-proofed sinking fund. Inflation had no place in the assessment of compensation for injurious affection. The Tribunal stated that it would in the present case be unfair to assess the compensation for injurious affection by reference to the diminution in value of the estate (which covered 10,000 acres and contained a valuable grouse moor) as a whole since this would be simply guesswork. The Tribunal therefore preferred a method that involved a build-up of various items of injurious affection on a ‘before and after’ valuation. The Tribunal ultimately adopted the District Valuer’s approach and, with some adjustments, arrived at £38,100.

3. Commuted sums under section 106 Town and Country Planning Act 1990 (England)

Claimants sometimes try to justify the level of commuted sums claimed for the future maintenance and replacement costs of accommodation works by reference to the amounts demanded by local authorities for the future maintenance of community infrastructure provided by developers to satisfy their planning obligations under section 106 Town and Country Planning Act 1990 (England).

The sums set by local authorities represent the sinking funds necessary to provide for the costs of future maintenance at given rates of interest and are not comparable to compensation for compulsory purchase. CPO compensation is assessed under a particular legal framework and the future maintenance costs of accommodation works represent injurious affection to the claimant’s retained land. It would therefore be contrary to the compensation code to adopt sums prescribed for the purposes of planning obligations as the basis for assessing compensation for injurious affection.

4. Disturbance

It is well established that disturbance relating to the retained land could be claimed in addition to severance and injurious affection. However, the cases contain warnings about double counting.

In the ‘Cuthbert’ case referred to above, the Tribunal determined (as part of the injurious affection claim) a reduction in the value of the retained land based on the estimated future cost of maintaining the accommodation works. A claim for disturbance was also made in that case but this related to more immediate losses comprising ‘Timber, other crops, farm manager’s expenses and expenses re Mill Farm’. These items were not included in the estimated future increased overheads.

In Gooderam v Department of Transport [1994] RVR 12 the Tribunal stated that compensation for disturbance in respect of the retained land could be claimed in addition to severance and injurious affection but ‘Plainly it is necessary in assessing these elements of claim to avoid double counting’.

In RJJ Killen Ltd v Department for Regional Development R/38/2011 (Lands Tribunal for Northern Ireland) the Tribunal assessed the claim for severance and injurious affection as a percentage of the ‘before’ value of the retained land. It also determined a disturbance claim but stated (at Paragraph 40) ‘In T G O’fee v Highways Agency [1999] the English Lands Tribunal saw no reason why disturbance compensation for losses should not be claimed in respect of land not taken if not otherwise compensated by the claim for severance and injurious affection’. Paragraphs 41 and 42 of the decision also make it clear that only disturbance items that had not been reflected in the assessment of severance and injurious affection could be paid in addition.

5. Summary

Compensation for the liability of a claimant for the future maintenance of accommodation works will usually comprise injurious affection and not disturbance.

A simple ‘before and after’ approach to the assessment of such compensation in relation to a large agricultural estate would probably not on its own be sufficient due to the lack of any open market comparable evidence of the ‘after’ value and the Tribunal prefers a method that involves a build-up of various items of injurious affection.

A detailed calculation of the net present value of the estimated future maintenance and renewal costs or of the necessary capital sums required to be invested to provide a sinking fund for these costs is not usually relied upon by the Tribunal. Allowances for inflation in such calculations are not appropriate because the compensation comprises injurious affection ie a loss in the open market value of land, where inflation has no place. Also the use of valuation tables with adjustments for tax is not appropriate in such calculations.

Whilst a purchaser of the claimant’s retained land ‘post scheme’ might have regard to calculations concerning the likely future maintenance and renewal costs of the accommodation works, in the end he would make an overall assessment in deciding by how much he would reduce his bid for the land bearing in mind that there could be competitive bidders in the market who might take a more robust approach to the assessment of the reduction in value of the holding due to the scheme.